Financial Times

Better governance
Challenges faced by the Ceylon tea industry
By Sunil Karunanayake
Sri Lanka has maintained its position as the world's largest tea exporter amidst emerging threats from African producers. In 2003 Sri Lanka exported 291 million kilos of tea valued at US $683 million, staying ahead of Kenya and China. The performance in 2003 is a compliment to the industry in the background of setbacks caused by the Iraq war and the unprecedented floods in low grown areas which account for 50 percent of the production.

Medicinal properties in tea that help prevent cancer prevention, fight viruses, improve dental care and lower coronary risks that have been discovered by research has given tea an edge over other beverages as a healthy herbal product. These features provide tea a unique economic advantage.

For a considerable period of time the tea sector has been plagued by disunity and lack of consensus among the major stakeholders resulting in retarded progress in the manufacturer/exporter coordination. A reversal to the Sri Lanka Tea Board import regulations (1981) in 1994 has prevented the importation of orthodox varieties of tea under concessionary terms to date due to sharply divided opinion. These lapses may well have provided opportunities for blenders/packers in other countries. Sri Lanka must capitalize on its strengths to pursue value addition as a catalyst for employment creation.

Today more than 50 percent of the tea production is accounted for by the non-corporate smallholder sector which is also leading by growth and high auction prices. Given these developments a revolutionary change to react to the new threats of competition and effects of globalisation is a crying need. Years of state ownership, over regulation and inability to take bold decisions through consensus, have cost Sri Lanka its rightful place in the global tea market.

The Tea Association of Sri Lanka (TASL) formed in February 2003 as an apex private sector body to bring together Colombo Tea Traders' Association (CTTA) representing exporters and producers, Federation of Tea Smallholdings (FTSHDS), Private Tea Factory Owners Association (PTFOA), Tea Exporters Association (TEA) and Colombo Brokers Association (CBA) was a refreshing move. TASL, an initiative of the ADB, is expected to unify all sectors of the industry and lead the initiatives for strategy formulation and implementation of changes with the least state intervention.

Quite fittingly TASL has established its goal as: "To reinforce Sri Lanka's position as the best in breed source of quality teas". TASL's maiden initiative in quality awareness for both factories and exporters has been well received by all stakeholders. It is hoped this will be progressively pursued by the TASL to achieve their dream of US$1 billion export target for 2007, a fitting thought for a country persistently under balance of payment pressures. At this juncture it is necessary that a clear demarcation be established between the roles of the Tea Board and the TASL to provide the correct mix of private sector flexibility and state sector authority for regulation.

Tea Board undoubtedly must strengthen the regulatory function to minimize malpractices such as fraud, thefts and adulteration and strengthen prosecutions to maintain the quality image of Ceylon tea.

Growing demand of "food safety and quality" and the requirements of importers to conform to such requirements necessitate rigid enforcement of quality standards from plucking to export processing. Factories that have already gone ahead with quality enhancements through ISO, HACCP and 5S are now reaping premium prices. Attention to detail during manufacture to eliminate extraneous matters and moisture control are some of the key ingredients for quality. Quality assurance within the "health quality food" concept is a necessity to win the confidence of high value food markets.

There's also an economic need to rationalize factories as little value is added by providing low quality teas. Overproduction and poor quality is an impediment in an oversupply situation and the Tea Board must move in to regularize this situation as the need of the day is quality and not record crops. Exports of poor quality tea could do serious irreversible harm to the reputation of Ceylon teas.

Colombo auction prices remain high (US$1.57/kg) reflecting strong and healthy demand influenced by a growing value added base. As experienced in the past, markets can be vulnerable to threats such as on shore packing. Australia, Egypt, Iraq and Pakistan were lucrative markets of the recent past. CIS, Sri Lanka's largest buyer accounting for 25 percent and a useful value added market, too may see a consolidation by the bigger global players in years to come.

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